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Author: SoMch2Knw Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 211  
Subject: Re: Awesome Candlestick Reading by me Date: 5/5/2004 12:15 PM
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when do you have to, TECHNICALLY, give back your shares to the person you borrowed the stocks from?

"Technically" when the owner of the shares you "borrowed" sells the position (a day, week, year, etc.). However, if your short position is equal to your long position, the broker may treat the transaction as borrowing from yourself and never be "required" to give back the shares until...

Is that day fixed, or is there some leeway? Also, I hear shorts "can get away from you".

... your cash/margin account is compromised (based on your brokers account requirements). A short position has "unlimited" risk.

If you are long with $1000 and the company tanks = you lose $1000, period

If you are short 100 shares (OSIP) @ $30 and that stock has a day like 4/23... your loss continues to increase until the price stops increasing... unlimited!! risk (except your broker will step-in when your cash/margin account is compromised and liquidate everything, lol, ouch!)

-----

However, a short position (with a long position) is like a hedge. You don't make (or lose) anything... Long $20 / short $20 = $0 gain.

But, if the market is "depressed" and you "cover" your short position at the bottom (while holding a Long position) it basically
-- reduces your cost base,
-- maintains the long position tax benefit, and
-- it can be a little insurance if things really turn "south."

If your short position has a "stop limit" in place at or below your long position price, and the price starts up... the "stop limit" is triggered automatically and effectively eliminates the downside (that sounds to easy, I know).

I recently closed a short position in IAG due to Wall Streets reaction to Greenspan & the positive momentum in gold. Effectively reducing my cost base but not exposing myself to short-term capital gains (by maintaining my long position). I am still leary of IAG and may sell the entire position, but I'm not certain which direction this industry is headed so I'm watching closely and hedging (now&then) with a short position.

Sorry, I started to ramble...

Disclaimer: I don't know the exact specifics of shorting (technically), but each broker is different (I use Scottrade).


Fool on!
... I'll let you think about that for a little while.

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